Note ban woes drag retail inflation to five-year low in January

Note ban woes drag retail inflation to five-year low in January

Inflation in vegetables was negative at (-) 15.62% from (-) 14.59% a month ago and for pulses and products, prices deflated by (-) 6.62%.

Consumer price inflation based on the consumer price index eased further to 3.17 per cent in January hitting the lowest in the past five years as retail prices fell for a sixth consecutive month.

Inflation rate of meat and fish, however, increased to 2.98 per cent in January, while that for fruits stood at 5.81 per cent.

Historically, India has paid more attention to wholesale prices than consumer ones, but the RBI now tracks retail inflation for setting its interest rates.

The fall in inflation has been mainly on account of falling prices of vegetables and pulses with the arrival of the winter crop.

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However, the index for sugar and confectionery drastically rose to 18.69 per cent. In January, it stood at 3.36 per cent against 6.48 per cent over the corresponding month previous year. Economists expect retail inflation to inch upwards in the months ahead. It was 4.81 per cent in January 2016.

"The curious part of this inflation rate is that the non-food components have shown higher price increases such as pan, intoxicants (6.4%), clothing and footwear (4.7%), housing (5.0%), fuel and light (3.4%), and miscellaneous items (5.1%)", Madan Sabnavis, chief economist at Care Ratings said.

A reversal in the base effect and the seasonal rise in prices of perishables are expected to push up the next two readings of CPI inflation. But a pick-up in global crude prices, a volatile foreign exchange market, and relatively high domestic non-food and non-fuel inflation have fuelled concerns among RBI officials.

The monetary policy panel had projected inflation in the range of 4-4.5% in the first half of the financial year and in the range of 4.5-5% in the second half with risks evenly balanced around this projected path.

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